N-Viro: Sludge Into Fuel

by Debra Fiakas CFA

After ethanol producers
figured out that pricey feedstock could rapidly erode profits, the
renewable energy industry began casting about for alternative
feedstock. What is cheaper than ‘free?’ Waste of all
kinds - sewage, mixed municipal trash, animal manure,
food and agriculture waste, wood pulp, exhaust gases, steam
- can be virtually free. Sometimes waste generators are
even willing to pay a fee to anyone willing to accept their nasty
stuff.

N-Viro International (NVIC:
OTC/PK) is one of those renewable fuel producers with its arms wide
open. The company has lengthy experience in treating
wastewater using its proprietary conversion process. The
waste streams are subjected to mineral by-products that have an
alkaline reagent that stabilizes and pasteurizes. The process
generates an odor-free ‘soil’ that improves harvests. N-Viro
has been producing this agricultural and gardening product for over
twenty years.

Image result for n-viro image
More recently N-Viro has jumped into the alternative energy race
with a patented biomass fuel that hashe characteristics of
coal. The production process accepts all sorts of feedstock
from livestock manure to food waste to paper sludge to municipal
waste. The pelletized fuel can be blended with coal to achieve
better energy results than coal alone. N-Viro’s fuel is also
environmentally-friendly with a lower sulfur emissions profile.
The company has quite a bit to offer the coal-fired power plant
owner. N-Viro’s fuel production process gives off ammonia,
which can be used by the power plant for removal of nitrogen oxides
from the plant’s exhaust gases.

With apparently excellent products investors could expect N-Viro to
find rapid traction in the market. Unfortunately, market
penetration appears to be woefully weak. The company recorded
$1.3 million in total sales in the most recently reported twelve
months ending September 2015. Worse yet still is that the net
loss was $2.0 million. Revenue has been higher. The
company reported $3.6 million in total sales in 2012, but the
top-line has been slipping downward ever since. There have
been no profits.

Operations have used $1.6 million in cash over the past four years
to keep the doors open. That is not a significant sum and it
is clear the company has been operated with a frugal hand.
However, there was only $25,000 left in the bank at the end of
September 2015.

That is why the company’s recent announcement to work with the
Zhejian Jiangxing Sewage Treatment Facility in the City of Jiaxing,
China might be of vital importance. The treatment facility
produces 550 metric tons of wet sludge every day and there are plans
to triple capacity. N-Viro has agreed to construct and
operating a processing facility to turn the sludge of Jiaxing into
N-Viro fuel.

Nothing ever happens quickly in China, but N-Viro may have stumbled
on a gem in Jiaxing City. Since the announcement in late
September 2015, the company has been silent on plans for working and
investment capital. Shareholders are likely keeping their
fingers crossed that its ‘Jiaxing gem’ can be used as collateral.

NVIC is quoted on the Over-the-Counter Pink Sheets, which likely
presents a problem for many investors. On the plus side,
N-Viro files financial reports with the SEC just like any listed
company. The stock trades well below a dollar per share and
that might seem tempting to some more adventurous investors.
Even so, the bid and ask spread is wide. That means a long
position will be met with immediate loss of value in their account
just on the spread. What is more trading volume is shallow and
getting out of the position in a hurry is not likely possible.